Tesla stock (NASDAQ:TSLA) has seen a drop of nearly 30% YTD, leading investors to question the company’s future prospects. Even though Tesla is poised for growth with promising ventures like the Robotaxi and expansion into the clean energy industry, these innovations could take years or even decades to fully implement.
The current demand growth for Tesla’s EV is slowing down, and the company faces stiff competition from emerging competitors. Given these factors, I believe Tesla stock should be held for the time being.
One key catalyst for Tesla is the introduction of the new self-driving Robotaxi. This was announced on August 8th, in a post by Elon Musk. Robotaxi, which operates on Tesla’s full self-driving technology, can be hailed via a smartphone app. The edge Tesla’s Robotaxi has over other competitors, such as Uber (NYSE:UBER) or Lyft (NASDAQ:LFT), lies in its commitment to sustainability and cost-effectiveness. The company emphasizes that the operation of Robotaxi will be significantly cheaper than traditional ride services due to its use of electric power and autonomous drivers.
Musk noted that Robotaxi allows Tesla owners to list their vehicles as shared fleets on the app, thereby generating income even when the vehicles are not in use. This feature enables customers to reduce the net cost of their vehicles.
Another growth catalyst for Tesla is its venture into the energy storage industry. Tesla’s Megapack, a large-scale rechargeable battery system for utility-scale and commercial energy, provides a solution for the renewable energy industry. For instance, the Megapack project in South Australia boasts a storage capacity of up to 300MWh.
Entering the renewable energy industry could benefit the company by increasing its revenue stream and market presence, thus fostering long-term growth. This is particularly relevant given that the renewable energy industry is valued over $2.4 trillion and is expected to grow at an 8.9% CAGR until 2032.
However, Tesla’s historical revenue growth rate has seen a decline from FY2021 to FY2023, likely due to the slowing demand growth for its EV products. I projected the revenue growth to be 20% for FY2024, considering the possible introduction of Robotaxi on August 8th of this year. The future revenue growth averages around 10-15%. The historical operating income margin is relatively low, averaging 10%, but it has shown consistent growth. I have predicted the operating income margins for FY2024 to remain steady at 11%.
Tesla’s terminal growth rate stands at 4%, aligning closely with the average economic growth. The calculated WACC is 13.5%, based on a beta of 1.6 and a risk-free rate of 4.36%. The discounted cash flow model suggests the fair value for Tesla’s stock is $193.33, a 10.3% upside from its current price of 174.67.
Tesla is grappling with significant challenges such as dwindling EV demand and increased competition from Chinese companies. In Q1 2024, Tesla reported an 8.5% decrease in its vehicles delivered QoQ, further disappointing many industry analysts.
Moreover, ongoing concerns about the safety of Tesla’s full self-driving system, which could potentially lead to unsafe situations on the road, persist. Tesla will need to address investigations related to its systems, which could impact its growth projections and future operations. The company must invest in research and enhance its autonomous driving technologies before launching Robotaxi.
Despite the current downtrend in Tesla’s stock due to the slowing growth of vehicle demand, the company still offers promising prospects, including the Robotaxi and expansion into the energy industry. However, these advancements could take a long time to become fully integrated into society. There are also potential risks, such as losing its market position in the EV industry and the safety of its vehicles’ operation. Given the current company risks, I don’t believe a 10% upside justifies increasing or starting a position at these prices, hence my hold rating.
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